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Entrepreneurship and Poverty Reduction in Rural America Entrepreneurship and Poverty Reduction in Rural America

Entrepreneurship and Poverty Reduction in Rural America - PowerPoint Presentation

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Entrepreneurship and Poverty Reduction in Rural America - PPT Presentation

Nicholas Kacher and Stephan Weiler Research Question Broadly Do entrepreneurial projects have tangible benefits in terms of the growth they create Economywide small young firms drive job creation ID: 710810

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Slide1

Entrepreneurship and Poverty Reduction in Rural America

Nicholas Kacher and Stephan WeilerSlide2

Research Question, BroadlyDo entrepreneurial projects have tangible benefits in terms of the growth they create?

Economy-wide, small young firms drive job creation (e.g. Haltiwanger et al. 2017)

Labor productivity growth falls to near zero in firms older than 5 years

(

Alon et al 2017)But Is Growth Inclusive?

2Slide3

Research Question, NarrowlyDo information spillovers from dynamic turnover – openings and

closures of establishments - lead to:Job growth?Poverty reduction?Do results vary across metro/micro/rural areas?

Does

dynamism in

different sectors have different impacts on poverty reduction?

3Slide4

Conceptual Framework

4

Entrepreneurship

Information

Growth

Schumpeter (1942)

Aghion

& Howitt (1990)

Akerlof (1970)

Hendricks and

Kovenock

(1989)

Lang and Nakamura (1993)

?

Bunten

et al. (2015)

Poverty Reduction

?Slide5

EntrepreneurshipMeasured as the opening (or closure) of a business Establishment“A single physical location where business is conducted or industrial operations are performed” with at least one employee

New firm, or expansion of existing firmEntrepreneurial ProjectNew combination of product/service, location, labor,

land, capital

5Slide6

Establishment Dynamism

6

Establishment births and deaths closely correlated, but overall

dynamism varies

widely across countiesDynamism effects?Negatives:

Risk and uncertainty + Frictional unemploymentPositive: Information spillovers, leading to long-term growth?

Data: Survey of Business Owners – Business Information Tracking SeriesSlide7

Declining Dynamism

7

Last decade has only accelerated decrease in dynamism

Openings

and closures have fallen in

Metro and Nonmetro areasIntriguingly slower decrease in Nonmetro countiesSlide8

Information Spillovers

Biz success depends crucially on InformationHypothesis

:

Successes

and failures of other ventures inform followersInformation is market-specificSupply (Factors of Prodn) and Demand (Market)Geographic Informational Asymmetries

Thin information markets deter investmentStagnation can become self-reinforcing

8Slide9

Entrepreneurship and Growth

Bunten et al. (2015) Dynamism as defined by Establishment Births*Deaths alongside Births and

Deaths

contributes to stronger county employment growth in 2000-07 time period

Strongest among Metro countiesEndogeneity addressed by IVsPost-Recession – Dynamism continues to contribute to growth across counties, still strongest in Metros

9Slide10

Entrepreneurship and Poverty

Reduction

Does Dynamism

R

educe Local Poverty?Shambaugh et al. 2018 – Dynamism increases number of job openings, which improves workers’ options and bargaining powerLocal dynamism may be especially important as interstate mobility declines (e.g. Frey 2009)Partridge & Rickman 2006

Increasing returns (e.g. Ades and Glaeser 1994, Krugman 2001) vs. Inter-regional equilibration (e.g. Blanchard and Katz 1992)10Slide11

Poverty – Summary Stats

Poverty data from Census Small Area Income and Poverty Estimates (SAIPE), using Census poverty line definitions

11

Modal poverty rate ~12%, some counties much higher

Poverty declined on average from 2010 to 2016, but not smoothlySlide12

Poverty – Summary Stats

12

Higher average poverty, and less poverty reduction,

in rural counties

Large variation in both initial poverty and poverty reduction

No correlation between 2010 poverty and poverty reduction 2010-2016Slide13

Poverty – Summary Stats

13

Highest poverty rates in

Nonmetro

areasNonmetro Mean poverty

>> Median, thus some with very high poverty ratesPoverty reduction has been slowest in more rural areas

(

back

)Slide14

Empirical ModelOLS first-difference approach:

Entrepreneurial Projects

includes Establishment Births, Deaths and

Births*Deaths

,

together representing

Dynamism

 

14Slide15

Entrepreneurship and Poverty Reduction – All Counties

Dependent Variable: Percent

Reduction

in County Poverty Rate 2010-2016

All Counties

(n=3032)

Metro

(n=825)

Non-metro

(n=2225)

Establishment Births 2010

1.521***

1.770

1.406***

Establishment Deaths 2010

-0.517

-0.662

0.062

Establishment Births*Deaths 2010

-0.059

-0.048

-0.018

Bartik Demand Shock

-0.245***

-0.370***

-0.158***

Lagged Employment Growth, 1990-2000

0.073***

0.076***

0.058***

Log Employment 2010

0.225

0.350

1.757***

Population Density 2010

-0.168***

-0.190***

5.390

Creative Class Employment Share 2007-2011

-0.520***

-0.391**

-0.521***

Arts Employment Share 2007-2011

0.238

0.219

-1.301**

Share with Bachelor's Degree or Higher, 2010

0.720***

0.695***

0.478***

Lagged Population Growth, 1950-1960

-3.672***

-4.109***

3.834***

Median Age 2010

-0.163***

-0.221**

0.002

Amenity Score

0.506***

0.586

-0.451***

Distance to Nearest MSA

-3.229***

-8.871***

-1.491***

Constant

6.096*

3.058***

-13.66***

R-Squared

0.151

0.211

0.079

Establishment Births

reduce poverty overall, yet…

Effects concentrated in Non-metro…

…in fact, in precisely the

most rural non-core counties

.Slide16

Entrepreneurship and Poverty Reduction

Dependent Variable: Percent

Reduction

in County Poverty Rate 2010-2016 (

obs

= 3032)

All Counties

n=3032

Metro

n=825

Micro

n=637

Rural

n=1610

Establishment Births 2010

1.521***

1.770

1.806

0.805*

Establishment Deaths 2010

-0.517

-0.662

-0.044

-0.222

Establishment Births*Deaths 2010

-0.059

-0.048

-0.022

0.000

Bartik Demand Shock

-0.245***

-0.370***

-0.084

-0.373***

Lagged Employment Growth, 1990-2000

0.073***

0.076***

0.143***

0.031***

Log Employment 2010

0.225

0.350

1.545

2.110***

Population Density 2010

-0.168***

-0.190***

4.934

-1.532

Creative Class Employment Share 2007-2011

-0.520***

-0.391**

-0.808***

-0.298**

Arts Employment Share 2007-2011

0.238

0.219

-3.363**

-0.600

Share with Bachelor's Degree or Higher, 2010

0.720***

0.695***

0.646***

0.451***

Lagged Population Growth, 1950-1960

-3.672***

-4.109***

2.872

5.172***

Median Age 2010

-0.163***

-0.221**

0.065

-0.075

Amenity Score

0.506***

0.586

-0.648***

-0.151

Distance to Nearest MSA

-3.229***

-8.871***

-2.632**

-0.212

Constant

6.096*

3.058***

-10.529

-16.541

R-Squared

0.151

0.211

0.079

0.112**Slide17

Sector-Specific Entrepreneurship and Poverty Reduction

Does the effect vary by sector?

Same model as before, but run separately for each sector

j

defined at the two-digit NAICS level

 

17Slide18

Sector-Specific Dynamism and Poverty ReductionBirths have a

broadly positive impact on poverty reduction, but does Birth & Death dynamism have additional effects?

Positive

: Coefficient on Births*Deaths is positive at 5% level, or coefficient on Deaths is positive at 5% level

Negative: Coefficient on Births*Deaths is negative at 5% level; Deaths either negative or insignificantHigh/low wage sectors, but also…Tradable/Nontradable (Moretti 2010

) multiplier debateVan Dijk (2018) suggests substantial overestimation

18Slide19

Sector-Specific Dynamism and Poverty Reduction – All Counties

19

Positive

Negative

Mining, Quarrying, and Oil and Gas Extraction

($1,787)

Wholesale Trade ($1,257)

Utilities ($1,716)

Retail Trade ($532)

Manufacturing ($1,129)

Transportation and Warehousing ($532)

Finance and Insurance ($1,530)

Information ($1,257)

Real Estate, Rental, and Leasing

($880)

Administrative and Support and Waste Management and Remediation Services ($656)

Management of Companies ($1,926)

Health Care and Social Assistance ($841)

Other Services (Except Public Administration) ($621)

Arts, Entertainment, and Recreation ($576)

 

Accommodation and Food Services ($345)

Dynamism in

higher-paying sectors tends to correlate with subsequent poverty reductionSlide20

Sector-Specific Dynamism and Poverty Reduction – Non-Metro Counties

20

Positive

Negative

Construction ($985)

Information ($1,257)

Wholesale Trade ($1,257)

Accommodations and Food Services ($345)

Finance and Insurance ($1,530)

Professional, Scientific, and Technical Services ($1,526)

Administrative and Support and Waste Management and Remediation Services ($656)

Educational Services ($862)

Health Care and Social Assistance ($841)

Other Services (except Public Administration) ($621)

Manufacturing ($1,129)

Retail Sales ($532)

Sectoral dynamism effects much broader in

Nonmetro

areasSlide21

Implications and Next Steps

Dynamism influences local employment growth

Establishment

births increase

both employment growth and reduce poverty in rural areasMany sectors’ dynamism including deaths reduce poverty, especially in rural areasNext stepsFurther analysis of

sectoral effects: Tradable/NontradableSpatial robustness: Does info spill across counties?Possible endogeneity: Instrumental variable approaches?21Slide22

Entrepreneurship and Employment Growth

Dependent Variable: Percent

Employment Growth 2007-2014

All Counties

n=3032

Metro

n=825

Micro

n=637

Rural

n=1610

Establishment Births 2007

4.642***

4.699***

5.324***

1.978***

Establishment Deaths 2007

-2.012***

-5.097***

-0.984

-0.172

Establishment Births*Deaths 2007

-0.0868

0.247**

-0.411**

-0.170**

Bartik

Demand Shock

0.0704***

0.088

0.036

0.105**

Lagged Employment Growth, 1990-2000

0.0321***

0.035***

-0.032

-0.020**

Log Employment 2007

-3.399***

0.112

-1.589*

-1.377***

Log Income 2007

3.408***

1.059

-7.857**

-2.053

Population Density 2007

0.122***

0.123***

13.991

-1.666

Creative Class Employment Share 2007

-0.201***

-0.159*

0.007

0.056

Arts Employment Share 2007

-1.285***

-1.232**

0.096

-0.970*

Share with Bachelor's Degree or Higher, 2000

0.406***

0.376***

0.338**

0.432***

Lagged Population Growth, 1950-1960

-0.767***

-0.768*

3.211*

1.493

Median Age 2000

-0.45***

-0.421***

-0.094

-0.482***

Amenity Score

0.077*

0.153**

-0.426**

0.036

Distance to Nearest MSA

0.000558

0.373

3.930***

0.851

Constant

-2.972

2.909

82.191**

44.460***

R-Squared

0.368

0.494

0.135

0.112

(

back

)Slide23

Sector-Specific Entrepreneurship and Poverty Reduction – Metro Counties (n=825)

23

Positive

Negative

Mining, Quarrying, and Oil and Gas Extraction ($1,787)

Construction ($985)

Wholesale Trade ($1,257)

Information ($1,257)

Finance and Insurance ($1,530)

Real Estate, Rental, and Leasing

($880)

Administrative and Support and Waste Management and Remediation Services ($656)

Educational Services ($862)

Health Care and Social Assistance ($841)

Arts, Entertainment, and Recreation ($576)

Accommodation and Food Services ($345)

Other Services (Except Public Administration) ($621)

Manufacturing ($1,129)

Retail Trade ($532)Slide24

Sector-Specific Entrepreneurship and Poverty Reduction – Micropolitan Counties (n=637)

24

Positive

Negative

Wholesale Trade ($1,257)

Information ($1,257)

Other Services (except Public Administration) ($621)Slide25

Sector-Specific Entrepreneurship and Poverty Reduction – Rural Counties (n=1610)

25

Positive

Negative

Construction ($985)

Agriculture, Forestry, Fishing and Hunting ($545)

Wholesale Trade ($1,257)

Information ($1,257)

Finance and Insurance ($1,530)

Arts, Entertainment, and Recreation ($576)

Real Estate, Rental, and Leasing

($880)

Transportation and Warehousing ($532)

Professional, Scientific, and Technical Services ($1,526)

Administrative and Support and Waste Management and Remediation Services ($656)

Educational Services ($862)

Health Care and Social Assistance ($841)

Other Services (Except Public Administration) ($621)

Manufacturing ($1,129)

Retail Trade ($532)Slide26

Entrepreneurship and Inequality?

Does dynamism effect overall inequality?

Types of jobs

created,

in/out-migration, etc.Data issue – Ginis only available in 5-year ACSDynamism appears to increase inequalityEffects concentrated in Metros and Micros

26Slide27

Entrepreneurship and Inequality

Dependent Variable: Gini Coefficient, 2016 ACS 5-year estimate

All Counties

n=3032

Metro

n=825

Micro

n=637

Rural

n=1610

Establishment Births 2007

-0.0012

-0.0013

0.0002

0.0011

Establishment Deaths 2007

-0.0034**

-0.0059*

0.0051**

0.0004

Establishment Births*Deaths 2007

0.0007***

0.0011**

-0.0005

-0.0002

Bartik

Demand Shock

0.0004*

0.0003

0.0013***

0.0005***

Lagged Employment Growth, 1990-2000

-0.0002***

-0.0002***

-0.0004***

-0.0001***

Log Employment 2007

0.0060***

0.0054***

0.0004

-0.0008

Log Income 2007

0.0254***

0.0470***

-0.0551***

-0.0225***

Population Density 2007

0.0007***

0.0003

0.0548**

0.0699***

Creative Class Employment Share 2007

-0.0012***

-0.0012***

0.0008

0.0002

Arts Employment Share 2007

0.0137***

0.0167***

0.0080**

0.0074***

Share with Bachelor's Degree or Higher, 2000

0.0003

0.0000

-0.0007

-0.0007***

Lagged Population Growth, 1950-1960

-0.0092***

-0.0067***

-0.0228***

-0.0192***

Median Age 2000

-0.0002

-0.0001

-0.0017***

-0.0011***

Amenity Score

0.0004**

-0.0001

0.0032***

0.0034***

Distance to Nearest MSA

-0.0048***

-0.0341***

-0.0008

0.0025*

Constant

0.1496***

-0.0637

1.0355***

0.7131***

R-Squared

0.537

0.631

0.199

0.123